Rigging trade with China

US “presssure(link to a sto­ry on SFGate)”:http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/01/04/EDGQV3KFI41.DTL on Chi­na to re-bal­ance bilat­er­al trade flows and re-val­ue the ren­min­bi is a depress­ing­ly famil­iar sto­ry. Through the 1980s we heard vir­tu­al­ly iden­ti­cal com­plaints about Japan (and the Yen), accom­pa­nied by delu­sion­al ‘trade war’ rhetoric from the Rea­gan Admin­is­tra­tion and a flur­ry of futile and cost­ly import bar­ri­ers (on semi-con­duc­tors, steel and cars). Japan, it was claimed, had unfair­ly used ‘admin­is­tra­tive guid­ance’ to devel­op its com­pet­i­tive strengths which it sus­tained by manip­u­lat­ing the yen-dol­lar exchange rate (to the immense joy of US investors). Now, Chi­na, is alleged­ly using com­mu­nist cen­tral plan­ning for the same pur­pose. ‘Non-mar­ket economies’ (NMEs) come in for a lot of pious jaw­bon­ing. But even more obnox­ious is the pres­sure placed on them to rig bilat­er­al trade. When the economies con­cerned in this bilat­er­al trade are the world’s biggest and most rapid­ly grow­ing economies the rest of us should pay close atten­tion. It is remark­able that the trou­ble­some inter­fer­ence of gov­ern­ments in mar­kets for light maun­fac­tures such as tex­tiles or auto­mo­bile parts or con­sumer elec­tron­ics is not con­sid­ered such a prob­lem when it applies to ser­vices such as the sup­ply of physi­cians or to elec­tric­i­ty sup­ply or to the num­ber and loca­tion of gas sta­tions or to the sup­ply of “defence-relat­ed” goods such as wide-bod­ied air­craft and jet engines, super-com­put­ers or even rail­way engines in coun­tries like UK or the USA or Japan or Aus­tralia. The dif­fer­ence between ‘cen­tral plan­ning’, ‘admin­is­tra­tive guid­ance’ and ‘social democ­ra­cy’ is all a mat­ter of degree, it appears—very small degrees in some cases—and depends on whether you’re one of us or one of them. Still more hyp­o­crit­i­cal, how­ev­er, is the implic­it deal that lies behind the threat of trade bar­ri­ers to NME import com­pe­ti­tion. There are no per­ma­nent pro­vi­sions for such bar­ri­ers in the WTO Agree­ments but they have a promi­nent, tem­po­rary, role in the Chi­na Pro­to­col of Acces­sion to WTO and may be invoked by any coun­try in some cir­cum­stances as part of an anti-dump­ing or anti-sub­sidy (‘coun­ter­vail­ing duty&#8217)investigation. The recent US tex­tile safe­guards[⇒ relat­ed sto­ry] are sanc­tioned by the non-mar­ket econ­o­my pro­vi­sions of the Chi­na Pro­to­col. Like every oth­er ‘con­tin­gent’ bar­ri­er sanc­tioned by WTO, these pro­tec­tion­ist mea­sures do their work not by ‘restor­ing bal­ance’ to com­pe­ti­tion in trade but by a much more insid­i­ous impact on mar­ket behav­iour. One the one hand, they encour­age ‘vol­un­tary’ export restraints. The alleged NME exporter (or alleged dumper) will often find it prof­itable to vol­un­tar­i­ly com­ply with a quan­ti­ta­tive restric­tion on exports (such as the QR’s placed on imports of Chi­nese gar­ments by the US safe­guards) in cas­es where demand in the export mar­ket is suf­fi­cient­ly inelas­tic. Japan­ese auto mak­ers such as Hon­da and Nis­san famous­ly prof­it­ed from the ‘vol­un­tary’ restraints imposed on them in the 1980s in the US mar­ket. On the oth­er hand, they encour­age implic­it pref­er­en­tial pur­chas­ing: the use of cen­tral­ly planned pur­chas­ing pow­er to favor sup­ply from coun­tries threat­en­ing to use NME bar­ri­ers on imports. Accord­ing to the “BBC”:http://news.bbc.co.uk/2/hi/business/3366983.stm bq. Chi­na has been attempt­ing to counter wor­ries about the trade gap with two recent Buy Amer­i­can mis­sions to the US to pur­chase com­modi­ties and man­u­fac­tured goods includ­ing jet air­craft and car fleets.

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